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- 🏦Commodity Prices Drop: What This Means for Australia’s Economy
🏦Commodity Prices Drop: What This Means for Australia’s Economy
Miko Santos
October 01, 2024
Good Morning. Miko here. The big news today is that the Reserve Bank of Australia's commodity price index fell 1.7% in September, continuing a downward trend that has seen it fall 10.1% over the past year, mainly due to lower iron ore and coal prices.
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In today’s email:
Commodity Prices Drop: What This Means for Australia’s Economy
APRA Revokes Licences of International Bank of Australia and IBOA Holdings
CommBank Reports Surge in Small Business Scams: Investment Scams Lead the Pack
Today’s reading time is 6 minutes. - Miko Santos
👇 Santos Unfiltered is a podcast that uses the best journalism to find the answers to the biggest questions.
The RBA Index of Commodity Prices fell a whopping 1.7% in SDR terms in September. This follows the -3% reading from August. While the non-rural subindex was down, the rural and base metal subindices were up; this reflects a mixed performance for the month across different sectors.
In Australian dollar terms, the index decreased 2.6% in September and decreased 12.8% on the year. The main contributors to the decrease in the index in September were decreases in the prices of iron ore and coking coal. These commodity price fluctuations go hand in glove with changes in global market conditions and have significant ramifications for both the economy in general as well as in specific sectors of the economy.
The Highlights:
The RBA Index of Commodity Prices has fallen 1.7% in SDR terms for September.
The non-rural subindex fell; however, the rural and base metal subindices were up.
In the past 12 months, the index has fallen 10.1 per cent in SDR terms and 12.8 per cent in Australian dollar terms.
Iron ore and coal prices depressed the index the most.
Why It Matters: All those who are connected with the Australian economy should be well aware of the changes in commodity prices. These changes have an effect on export revenues through the impact of competitiveness of Australian exports, investment decisions in the mining and agriculture sectors, and fluctuations in general economic stability. If the prices of essential commodities such as iron ore and coking coal fall, then there is reduced income from mining companies, which in turn may reduce employment and hurt regional economies. Besides, these trends could impact the Reserve Bank of Australia's monetary policy decisions as it weighs inflationary pressures and economic outlook alike using commodity price movements.
Bottom Line: This may be a different story that signals tougher times ahead, while the RBA Index of Commodity Prices is falling. Lower commodity prices will normally mean reduced profits for the mining companies, with effects on not only stock prices and by extension investment returns but also on operational expenses, workforce stability, and long-term viability. The trends, therefore, need to be closely watched by all stakeholders who should adjust the strategy of portfolio management to limit risks and capitalize on opportunities that emerge in line with revised economic forecasts.
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The latest move has seen APRA agree to the cancellation of authorisations of International Bank of Australia Pty Limited and IBOA Group Holdings Pty Ltd. The move follows applications from the two companies to cancel their licences to operate respectively as a restricted ADI and as a NOHC. The revocation is important in that the firms had not undertaken any business activities since November 2022 when they obtained the licences.
However, the revocation of their licences does not prevent International Bank of Australia from making future applications for an ADI or restricted ADI licence. The determination of this matter highlights the very fluid environment in which financial regulation exists and reinforces the need for compliance, as well as prudent decision-making by the entities falling within that ambit. The revised lists of APRA-authorised ADIs and non-operating holding companies can be found on the APRA website.
The Highlights:
APRA Revoke Licenses of International Bank of Australia and IBOA Holdings.
International Bank of Australia had no products, customers, or deposits at the time of revocation.
The revocation of the licences does not impact the ability of International Bank of Australia to apply for licences in the future.
Updated lists of APRA-authorised ADIs and NOHCs are attached and can be found on the APRA website.
Why It Matters: This revocation is important in underlining strict regulatory requirements and controls in force in Australia's financial industry. In other words, through the said revocation, the stakeholders have been brought back to the prime importance of regulatory compliance and how strategic decisions for business could affect them. It also echoes that the financial market is dynamic and that changes in it may require institutions to shape their structure as per the dynamically changing regulatory environment.
Bottomline: The revocation of these licences on the part of APRA sent a signal, both to financial and investment experts, about regulatory compliance and strategic agility. This may affect investor confidence and would seem to increase the need for comprehensive due diligence in advance of placing investments with newly licensed financial institutions. It is important, and can't be stressed enough, that one keeps up with any developments on the regulatory front and understands those implications toward making informed investment decisions.
Image: CBA newsroom
New data from CommBank reveals an alarming trend, where almost 90% of all scams reported by the bank's business customers in FY24 came from small businesses. Investment scams, phishing, and business email compromise are among the leading scam styles to affect Australian small businesses. With more than half of losses attributed to investment scams, there is a huge financial and emotional toll on small business owners.
These scams, as stated by the Executive General Manager of Small Business Banking at CommBank, Rebecca Warren, are particularly severe, with the average loss for small businesses to investment scams running up to $30,000. The bank is fully committed to early detection and fraud prevention through leading-edge fraud prevention technologies and customer education. At the same time, business owners have a significant responsibility to be vigilant and keep themselves abreast of current threats.
The Highlights:
Up to almost 90 percent of scams reported by CommBank's business customers in FY24 came from small businesses.
The most common scams are those including investment scams, phishing, and business email compromise.
Small businesses lose, on average, around $30,000 to investment scams.
CommBank is calling for early detection, prevention, and customer education against scams.
Why It Matters : It is of grave importance to understand the prevalence and the impact of scams on small businesses for business owners and financial institutions. Other than causing irreparable financial loss, scams threaten to destroy stability and hamper growth in small businesses. Informed business owners take rigorous security measures to safeguard their assets and protect their operations from falling prey to these heinous crimes.
Bottom Line: In sum, the increase in small business scams, according to CommBank, indicates the importance of cybersecurity and fraud prevention for financial and investment experts. Investment scams can have a devastating impact on finances, and business owners should keenly address this through strong security practices, being informed of trends that may breed similar threats. By tracking these trends, advisors can give key insights to best practices to help mitigate risks and protect investments.
Image: Qatar Airways
In a significant move for the Australian aviation industry, Qatar Airways Group has announced its intention to acquire a 25% equity stake in Virgin Australia from Bain Capital. This strategic investment is anticipated to enhance the partnership between Qatar Airways Group and Virgin Australia, fostering increased competition in the market and offering Australian consumers enhanced value and a wider range of choices.
This partnership will allow Virgin Australia to increase its international presence, including the launch of long-haul flights to Doha by mid-2025. This collaboration will not only enhance connectivity for Australian travellers but also bring substantial economic benefits, including job creation and increased tourism. The investment emphasizes the value of partnerships in the aviation industry and showcases opportunities for growth and innovation.
The Key Points:
Qatar Airways Group to acquire a 25% equity stake in Virgin Australia from Bain Capital.
The partnership aims to strengthen competition and offer better value for Australian consumers.
Virgin Australia plans to launch long-haul flights to Doha by mid-2025.
The collaboration is poised to bring substantial economic benefits, including the creation of new jobs, with an estimated number of positions to be announced, and a boost in tourism, contributing to the growth of the tourism sector.
Why It Matters: Qatar Airways Group's strategic investment marks a significant milestone for the Australian aviation industry. It underscores the value of international partnerships in enhancing competition and consumer benefits. The collaboration will enhance Virgin Australia's financial resilience and support its long-term growth strategy. Additionally, the increased connectivity and economic benefits will have a positive impact on the broader Australian economy.
Bottom Line: For financial and investment experts, Qatar Airways' acquisition of a 25% stake in Virgin Australia represents a strategic move that could reshape the competitive landscape of the Australian aviation industry. The partnership aims to drive growth by expanding route networks, improve connectivity through seamless travel options, and generate significant economic benefits such as increased tourism revenue and job opportunities. Vigilantly monitoring the regulatory approval process and market effects is essential for making well-informed investment decisions, providing valuable insights for potential investors and stakeholders alike.
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